Snap perks up after initial rush of short sellers

Specialist Trader Glen Carell gives a price for Snap Inc. during the company's IPO on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 2, 2017. REUTERS/Brendan McDermid

SAN FRANCISCO (Reuters) - Shares of Snap Inc (SNAP.N) bounced back on Wednesday following a steep selloff while an initial rush to short sell the stock appeared to be slowing.

The owner of the Snapchat messaging app had fallen sharply in the previous two sessions as investors focused on its lofty valuation following a $3.4 billion public listing last week that was the hottest technology offering in three years.

Shares of Snap, which has warned it may never be profitable, closed up 6.4 percent at $22.81.

Traders betting against Snap on Wednesday added less than $50 million in new short sales of its stock, a slower pace than the day before, when initial short bets jumped to $300 million, according to S3 Partners, a financial analytics firm.

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Short sellers borrow and then sell stocks they think will fall in value, hoping to profit by buying the stock back more cheaply later on and then returning it to its owner.

Reflecting a higher supply of Snap’s shares and potentially less demand, the annual interest rates brokers charged to lend the shares declined to around 15 percent from as much as 40 percent on Tuesday, said S3 Partners Managing Director of Research Ihor Dusaniwsky.

A woman stands in front of the logo of Snap Inc. on the floor of the New York Stock Exchange (NYSE) while waiting for Snap Inc. to post their IPO, in New York City, NY, U.S. March 2, 2017. REUTERS/Lucas Jackson

By comparison short sellers paid 19 percent to borrow Twitter’s (TWTR.N) stock after its 2013 listing, according to IHS Markit.

Traders looking for a piece of the action in Snap will get another way to bet when its options start trading on Friday.

Snap has been a roller-coaster ride for investors, surging 59 percent in its first two days of trading, and falling 15 percent since then.

Billionaire investor David Tepper, whose views on stocks are closely watched by other money managers, told CNBC on Wednesday he bought shares of Snap in the IPO, sold some, and would buy again if the price dropped.

FTSE Russell will consult with big investors on whether to include companies like Snap in its widely followed stock indexes even if their shares lack voting rights, an FTSE Russell executive said.

Snap would benefit if it were added to major stock indexes because index portfolios managers would have to buy its shares, and other investors whose performance is tracked against such benchmarks would likely follow suit.